We May See a Merrill Lynch IPO: Strategist

CNBC.com

Friday, 8 May 2009 | 6:29 AM ETCNBC.com

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One of America's 'most stressed' banks, Bank of America, is likely to fail in its ambition to operate as a conglomerate, Bill Smith, president, CEO and senior portfolio manager at SAM Advisors, told CNBC Friday after the government's stress tests showed the bank needs to raise an additional $33.9 billion in capital.

"Bank of America , in my opinion, is going to fail as a conglomerate," Smith said, adding that he sees Merrill Lynch being "spun off in a couple of years."

BoA Likely to Fail

Bank of America will overall fail as a conglomerate, says Bill Smith, president, CEO and senior portfolio manager at SAM Advisors. He speaks to CNBC's Karen Tso and Martin Soong.

"Once Bank of America gets through this credit crisis, in two or three years, there's a very good likelihood that you're going to see an IPO of Merrill Lynch again and there's a possibility that Merrill Lynch can be a publicly traded company again."

On Friday, BofA CEO Ken Lewis said the bank had no plans to divest Merrill's investment banking business.

On Thursday, the U.S. government released its stress test results which revealed that 10 out of the 19 banks tested required more capital, to the sum of $74.6 billion.

"This has been an absolute circus and we're glad to see it's finished," Smith said. "The stress test was too generic."

Smith doesn't see the big banks finding it hard to raise the capital required. "The market's accepting these capital raises," he said.

Smith told CNBC that the 'supermarket model' used by major banks like Bank of America and Citigroup is dead.

"The Citigroups of the world have to dismantle," Smith said. "The model's a proven failure and that's why you're seeing Citigroup already broken up into two pieces."

He predicts a lot more "shotgun marriages" among the US regional banks that were involved in the government stress tests.

Smith told CNBC the financial companies who are able to pay back the TARP funds should be allowed do it immediately.

"Many of these banks never wanted to accept or take these TARP funds to begin with, they were forced to do it," he said.